The economic functions of government tend to be viewed primarily as either public spending programs or revenue-generating activities that are used to pay for public spending. Another area in which the government has a profound influence on the economy is regulation. Regulation like other government activities, can be analyzed within both a positive and a normative framework. In general, a case for government regulation can be made in instances in which the private sector of the economy could be expected to operate with less than optimal results.
The line of reasoning used to justify government regulation is that, in many cases, the market does a less-than-perfect job of allocating resources. In these instances, one might hope to improve on the market's results through regulation. Sometimes, as with national defense and highways, the government is the producer of the good in question. At other times, the market allocation may be aided by regulation, leaving the actual production to take place in the private sector.
Keep in mind that just because the market may not perfectly allocate resources does not mean that the government can necessarily improve matters through regulation. Thus, a complete analysis of regulation must include not only the reasons why regulation might be justified but also the reasons why regulation might fail to produce its intended results.
Yet another motivation for using regulation rather than public sector production is that regulation places the cost of compliance on those who are regulated. In an era in which government is looking for ways to reduce its expenditure growth without reducing its influence, regulation can be enticing to legislators. If, for example, the government wants ramps installed to make access easier at buildings open to the public, the government could build those ramps for owners of existing buildings. This would place...